Should Bitcoin be banned due to its environmental impact?

The amount of electricity used to mine and trade bitcoin climbed to 121 terawatt hours in 2023, up 27 percent from the previous year, writes Matthew Sparkes.

While other cryptocurrencies have made bold changes to reduce their impact, Bitcoin’s decentralized community of developers, miners and investors shows little interest in changing course.

If Bitcoin Can’t Clean Up Its Own Act, Should Governments Step In?

The latest data from the University of Cambridge shows that Bitcoin accounts for 0.69 percent of all electricity consumption worldwide. It also requires large amounts of water, both for electricity production and for data center cooling.

A study last year found that a single Bitcoin transaction uses enough water to fill a small swimming pool.

To dispense with centralized control, but to ensure security and reliability, Bitcoin traders register transactions in a record called the blockchain by performing large numbers of calculations.

This protects the network because hackers would need to control more than half of that computing power to falsify or reverse a transaction.

But it also sucks up resources and pumps carbon into the atmosphere. Bitcoin is estimated to account for 0.16 percent of global greenhouse gas emissions.

Alex de Vries at VU Amsterdam in the Netherlands believes Bitcoin’s impact is indefensible.

“The whole system is built to incentivize participants to waste as many resources as they can possibly afford on making calculations whose results are immediately discarded,” he says.

In 2022, another cryptocurrency, Ethereum, abandoned this wasteful “proof-of-work” system and replaced it with one where those who own currency control the network, rather than those who own and operate computing power.

This reduced the network’s energy consumption by more than 99.99 percent overnight. More than a year later, the experiment was successful, and Ethereum remains secure.

De Vries says the bitcoin community refuses to take the same step and remains true to proof of work despite its environmental impact.

“Such a system is just totally inappropriate at a time where human-induced climate change makes it more and more urgent to be more mindful of the way we use resources,” he says.

“We will immediately reduce global electricity consumption by half a percent and global carbon emissions by a quarter percent if Bitcoin abandons proof of work.”

A statement on the website of the Bitcoin Mining Board (BMC), a membership body established to speak on behalf of mining companies, states: “The BMC believes that Bitcoin’s energy consumption is a feature, not a bug, and offers tremendous network security.”

A campaign called Clean Up Bitcoin, backed by US non-profit organization Environmental Working Group and Greenpeace USA, aims to pressure the industry to reduce its environmental footprint, pointing out that the rapid turnover of machines that design is to mine bitcoins, also 30,000 tons of e-waste annually to landfill.

“The growing climate and community impact of Bitcoin mining has been starkly and strongly documented,” says Erik Kojola at Greenpeace USA. “Even with this knowledge, Bitcoin miners and investors continue to move forward.”

Kojola says financial firms such as BlackRock, Fidelity and JPMorgan Chase want to promote greater adoption of Bitcoin by creating financial instruments that allow people to invest in it indirectly.

“Our concern is that this will drive up Bitcoin’s price, causing an explosion in the environmental and social footprint,” he says.

BlackRock says it was unable to discuss its Bitcoin fund due to the US Securities and Exchange Commission’s rules on products being reviewed.

If the bitcoin community or the financial industry doesn’t work on a solution themselves, governments will have to force changes, says Rachael Orr at the charity Climate Outreach.

“It is very important that people are made aware of the environmental costs of trading in these currencies,” she says. “Our research shows that people are willing to change their behavior, but they need strong leadership from governments.”

However, Bitcoin’s decentralized nature makes it difficult to enforce change. Countries can individually ban bitcoin mining — as China did in 2021 — but without global consensus, this is likely to lead to a game of hit-and-run where miners move to evade bans.